As one of the three pillars comprising the Growthpoint strategy, earnings from the V&A Waterfront were in line with expectations for the six-month period to 31 December 2011. The V&A represents about 7% of the fund's Net Income and almost 10% of total asset value.
Growthpoint bought 50% of the V&A Waterfront in Cape Town for R4,9 billion in partnership with the PIC on behalf of the GEPF and took transfer of the property in June 2011. “The overall transaction, including debt funding, has not proven dilutive to Growthpoint due to debt funding and capital raising secured at better levels than anticipated at the time of the acquisition. It’s a prime asset that is performing positively, at original projection levels,” says Growthpoint CEO Norbert Sasse.
He reports overheads at the property have been tightly managed and, consistent with development plans for the precinct, construction of the Allan Gray head office at the V&A Waterfront is underway.
Importantly, Sasse points out that during the period, Growthpoint elected to expense the interest cost on the bulk it purchased at the V&A Waterfront, instead of capitalising it. The bulk represents a developmnt potential of around 200,000 sqm at present. “Capitalisation of the interest would have resulted in distribution growth of around 8% (as compared with the official 6.1%), however we felt that it would artificially increase the value of the bulk,” explains Sasse. “We continue to base our distributions on sustainable income from rentals.”
Being the iconic product that it is, navigating the myriad cultural, heritage and political expectations that play themselves out at the V&A, will be challenging but no doubt extremely exciting.
For example, the Fishing & Industrial (F&I) component of the V&A is only some 5.8% of its value and 8% of net income. It does however lend authenticity to the operation and it may indeed be a political hot potatoe in coming years if not careful managed. Presently the industrial and Marina related revenue is strong and was in fact marginally ahead of Growthpoint's budget; but there is a sense that some of these land uses could be changed to a more commmercial orientation. In fact some 43% of the F&I Gross Lettable Area (GLA) is up for renewal by end 2013 and a further 19% by end 2014 suggesting that a decision on exactly how the F&I is handled may be required sooner rather than later.
There is also a sense that a slightly more affordable product is required in order to postion the V&A closer to the SA and local consumer market. This could in itself present challenges: for example retail turnover growth is significantly stronger here than in other Growthpoint retail markets. High rentals play an important role and if this positioning were altered it may indeed have unintended consequences; of course increasing footcount will mitigate this risk. Sasse in fact hints that local retailer interest is strong and as much as an additional 20-30,000sqm could be demanded; again a challenge to Growthpoint/V&A is exactly how this amount of demand can be accommodated on site.
